This blog posts answers to questions given to us by ministers and others serving in Christian ministries advancing the gospel of Jesus Christ. It also discusses other financial topics that those in gospel ministries face. We trust the information provided can be helpful to you.

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From my 403(b) retirement plan can I rollover an amount to a Traditional IRA, then roll that over to a Roth IRA to avoid paying self employment taxes?

Answer:

First, timely rollovers from an Internal Revenue Code section 403(b) plan to a Traditional IRA are non-taxable both for income and self-employment (SE) tax purposes. In fact, distributions from qualified retirement plans are not subject to SE tax. Income tax can be postponed by rolling over 403(b) distributions to a Traditional IRA. But subsequent distributions from a Traditional IRA rolled over to a Roth are not tax-free.

However, there may be reason to avoid rolling over a lump-sum distribution from a 403(b) plan into a Traditinal IRA. Please reference the following posting and others within this blog related to housing allowance designations.

Can a pastor pay extra on his mortgage principal and use it to count toward his housing allowance?

Answer:

Yes, but.

A minister who receives a housing allowance may exclude the allowance from gross income to the extent it is used to pay expenses in providing a home. The IRS lists only food and servants as prohibitions to allowance housing expenses. If a minister owns a home, the amount excluded from the minister’s gross income as a housing allowance is limited to the least of the following: (a) the amount actually used to provide a home, (b) the amount officially designated as a housing allowance, or c) the fair rental value of the home (IRS Publication 1828; Clergy Housing Allowance Clarification Act of 2002; IRS Regulation Section 1.107-1).

Because of the third limitation listed here, many ministers gain little or no benefit by accelerating their mortgage payments. For example, an additional $5,000 principal payment adds to the amount actually used to provide a home. But it doe…

Corey Pfaffe

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This information is provided as a service of MinistryCPA.org to ministers and Christian ministries. Please contact me or your personal professional advisor to determine how this information may apply to your own situation.